If you were a currency speculator who could perfectly foresee 3 months into the
ID: 2632450 • Letter: I
Question
If you were a currency speculator who could perfectly foresee 3 months into the future, based on the information presented below, would you rather take a long (buy British pounds) or a short position (sell British pounds) in the three-month forward contract for British pounds on 2/1/XX?
1. Long
2. Short
If you were a currency speculator who could perfectly foresee 3 months into the future, based on the information presented below, would you rather take a long (buy British pounds) or a short position (sell British pounds) in the three-month forward contract for British pounds on 2/1/XX? 1. Long 2. ShortExplanation / Answer
Based on the 2/1/XX quotes, convert $10,000,000 into British pounds (3 point): 10,000,000 / 1.4449 =
BP 6,920,894.18
b. Based on the 2/1/XX quotes, convert 100,000,000 yens into francs (3 points): (100,000,000 x 0.008285) /
0.6018 = SF 1,376,703.22
c. Based on the 2/1/XX quotes, how many yen does it take to buy one pound? (3 points):1.4449 / 0.008285
= Y 174.40
d. Suppose you bought 5,000,000 francs in the spot market on 2/1/XX and sold all of it on 5/1/XX , what
was your dollar profit or loss from this transaction ? (4 points): 5,000,000 x (0.6020 - 0.6018) = $1,000
e. During the three-month period, what was the percentage appreciation / depreciation of the yen from the
US point of view ? (4 points): % change in DQ for yen = - 9.85%
f. During the three-month period, what was the percentage appreciation / depreciation of the US dollar
from the British point of view? (4 points): % change in DQ for BP = - 1.073%; % change in IQ for BP = [
100/(100 - 1.073) - 1] * 100 = 1.084%
g. If you were a currency speculator, based on the information presented, would you rather take a long or a
short position in the three-month forward contract for BP on 2/1/XX? (3 points): Short position
h. On 2/1/XX, GM sold a three-month forward contract for 250 million yen to CitiCorp. Based on this
transaction, indicate whether each statement listed below is either true or false: (5 points)
Statements True or False
On 5/1/XX, GM will have to pay $1,875,250 to CitiCorp F
On 2/1/XX, GM will have to deliver 250 million yen to CitiCorp F
On 5/1/XX, CitiCorp will have to pay $2,071,250 to GM F
On 5/1/XX, CitiCorp will have to deliver 250 million yen to GM F
On 5/1/XX, CitiCorp will have to pay to $2,090,000 GM T
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